Environment Secretary Michael Heseltine has scrapped the controversial poll tax and replaced it with a property tax.

The new council tax will involve a single bill for each household based on two elements - the number of adults living there and the value of the property.

The government's announcement is already being hailed as a major u-turn - coming only a year after the tax was introduced.

It follows massive public opposition, which culminated in a riot in central London in March last year, when 100,000 took part in a rally against the levy.

The new tax should reflect people's ability to pay, be easy to collect and be seen to be fair

Environment Secretary Michael Heseltine

The unpopularity of the tax is said to have contributed to the downfall of Margaret Thatcher last November. One of John Major's first tasks as her successor was to appoint Michael Heseltine with a view to dismantling the poll tax and introducing a new charge.

Under the terms of the council tax, houses will be allocated to one of seven bands, but it is yet to be decided whether the charge will relate to capital or rental value.

In a 22-minute statement to the House Of Commons, Mr Heseltine said: "In spite of the comprehensive system of income-related rebates, and the reduction scheme we devised, the public have not been persuaded that the community charge is fair.

"The new tax should reflect people's ability to pay, be easy to collect and be seen to be fair."

Under the community charge, everybody made a fixed payment to their local authority, regardless of their means. It will be gradually phased out and replaced by April 1993.

Labour MPs believe the Tories have been forced into a humiliating climbdown.

Shadow Environment Secretary Bryan Gould said: ''We have just heard the most complete capitulation, the most startling U-turn and most shameless abandonment of consistency and principle in modern political history.''

Alan Beith, the Liberal Democrats' Treasury spokesman, supported his comments and said the Government was leaping ''out of the fying pan into the fire'' by combining the principles of the two most unpopular taxes - rates and poll tax.

Meanwhile, many Tory MPs are concerned that the new tax will create losses for many people, offsetting any electoral gains for those hit hardest by the old poll tax.

Southern Conservative MPs also claim that the property element will mean big losses for their constituents.

But Mr Heseltine argued that regional variations in property prices would not be allowed to produce disproportionate bills.

The Chancellor of the Exchequer Norman Lamont has tried to ease the current burden created by the poll tax by raising VAT in the budget this week in order to reduce bills by an average of £140 per head.

The move has caused chaos for local councils who must now recall many bills that have already been sent out.